China Developers: Transferring Coverage; Top Line and Earnings To Improve Amid Demand Recovery

We are transferring coverage of China state-owned developers—namely China Overseas Land & Investment, or COLI; China Resources Land, or CR Land; and China Jinmao. While we maintain our fair value estimates of HKD 31.00 for COLI and HKD 43.00 for CR Land, we lower Jinmao’s to HKD 1.90 from HKD 2.40, due to more conservative estimates on gross margins through 2027. Amid recovering homebuyer confidence, we believe the property development revenue of the three developers will post a meaningful rebound in the next few years, leading to pickups in earnings off low bases in 2022. Also, we think large state-owned developers such as COLI and CR Land will fare better than peers in sales thanks to landbank replenishment in higher-tier cities, strong operating efficiency, and robust funding status. In our view, all three developers are undervalued as the market’s negative sentiment is unwarranted given improvement in their financial performances. Our top pick for the sector remains COLI.